Car accidents can be stressful. Your car’s value may decline even after it has been repaired to its original condition. Diminished value is the difference between your car’s current market value and the value after an accident. Depending on the circumstances of the accident, a car insurance company might pay for the diminished value of your vehicle after a covered loss.
If your vehicle is damaged in an accident, understanding diminished value can help you file a claim. Bankrate’s editorial team has collected information about diminished value to make it easier for you to file a claim.
What is diminished value?
Even if your car goes through all the procedures necessary to return it to its original condition, it’s likely that your car’s value will drop after an accident. Diminished value refers to the difference between your car’s current market value and its value after an accident. Carfax and other reports can show that your vehicle has been in an accident. This will affect its market value. You can file a diminished value claim to recover the cost of restoring your vehicle to its pre-accident price.
Types of diminished values
There are three types that can cause diminished value. Each type refers to the loss in value of your vehicle following an accident.
Inherent diminished value
This is the most popular and widely accepted type of auto accident diminished worth. Inherent diminished values are when a vehicle’s value is affected by its past damage. This information can be found in the car’s history reports. This type of diminished valuation assumes that repairs to the vehicle were done in an optimal manner and is a measure of the amount the vehicle’s value will decline based on its accident history.
Immediate diminished value
This is the vehicle’s diminished value. It refers to the difference in the vehicle’s resale price immediately following an accident or before it has been repaired. This type of diminished value is not often used in a claim for diminished value because your insurance company covers most damage repair immediately following an accident.
Repair-related decreased value
This is the value loss caused by poor quality repairs after an accident. If the paint color isn’t exactly match, or if aftermarket parts replace OEM parts, this can result in a decrease in value that goes beyond what the vehicle now has due to the accident. This means that the vehicle cannot be restored to its original condition.
Calculating diminished value
The 17c Diminished Valuation Formula is the most common calculation used by American insurance companies to calculate the vehicle’s new value after an accident. This formula was developed in a Georgia case involving State Farm. It appeared at paragraph 17, section C, which is where its name came from. These are the steps to calculate diminished value using this formula.
Step 1: Calculate the car’s value.
The NADA and Kelley Blue Book websites can help you determine the vehicle’s value. Each site has a calculator that allows you to input some information about your vehicle. The year, make, and model of your vehicle, as well as the damage to it, will be required.
Step 2: Add a 10% limit to this value.
Insurance companies often apply a 10% cap to the vehicle’s sales value as NADA or Kelley Blue Book estimates. This is known as the base loss value. This is the maximum amount that your insurance company will pay for a claim.
Step 3: Use a damage multiplier.
To adjust the vehicle’s value, insurance companies use a damage multiplier. Based on the extent of structural damage to your vehicle after an accident, the 10% cap value is multiplied with a number from 0.00 up to 1.00. The 0.00 multiplier is for vehicles that have not suffered structural damage or had their panels replaced, and the 1.00 multiplier for cars with severe structural damage.
Step 4: Use a mileage multiplier.
NADA and Kelley Blue Book consider the mileage of your vehicle when determining its value. Insurance companies calculate the mileage deduction. To calculate the final diminished vehicle value, multiply step 3’s adjusted value by one of these mileage multipliers.
To calculate the diminished car value, use formula 17c. Take your vehicle’s value and add a 10% cap. The damage multiplier would be based on the car’s damage and the mileage multiplier based upon your mileage.
If your vehicle’s market value is $15,000 and you have moderate damage to the structure and panels, and your mileage is 20,000, then your formula for calculating diminished value would be:
$15,000 x 0.10 = $1.500, which is the maximum amount you could receive from an auto insurance company for a reduced value.
$1,500 x 0.50 = $750. This would be the value adjusted to moderate damages.
$750 x 0.80 = $600, which is the value for vehicles with more than 20,000 miles.
How to file a claim for diminished value
Filing a diminished value claim can be more involved than filing a claim for other issues because the burden of proving the car’s diminished value is generally your responsibility.
Your diminished value claim for diminished value will be denied if you are found to be at fault in an accident. You should speak with your auto insurance if the other driver is responsible for the accident.
First, check with the insurer about filing a diminished-value claim. You may need optional uninsured motorist coverage if the other driver is not insured to file a claim.
Also, you will need to provide documentation of the car’s actual value from an approved source such as NADA or Kelley Blue Book. Common documents required for the claim process include photographs of the accident scene as well as documentation about the repairs done to the vehicle following the accident. Before you file a claim, make sure to read all requirements.
The next step is to prove the car’s declining value. You will need to have the car appraised by an expert. A reliable and certified appraiser is key to a successful claim for diminished value.
Make sure that you meet all conditions before you file a claim with your insurance company. This will give you the best chance to receive compensation for your loss.
Noting that diminished value claims can also be affected by state regulations is important. You will be better able to understand your rights regarding diminished vehicle value because every state has its own insurance laws.
There are some things to consider when filing a claim of diminished value
A diminished value claim may not be the best option for you. A diminished value claim can result in a payout or rejection. Here are some things to keep in mind:
- Your vehicle’s worth before the accident: You may not be eligible for a diminished value payout if your car has had a lot of mileage, or structural damage.
- No matter if you were at fault. If you are found to be responsible for the accident, your insurance company will most likely not cover a claim of diminished value.
- You should file a diminished-value claim if you are in an accident with uninsured drivers.
- No matter where you live: Each state has its own regulations regarding diminished value claims.
Each state has its own statutes regarding diminished value payouts. It is important that you research these regulations. All states except Michigan allow for some level of diminished value claim to be filed if the other party is at fault.
How to file a diminished claim
You may want to file a diminished-value claim if you are in an accident in which the other party is responsible. This will allow you to recover the difference in the vehicle’s worth. A diminished claim cannot be filed against your insurance company in most cases. This means that you should not attempt to file it if the accident is your fault.
It is best to file a diminished claim with your at-fault party’s insurance company as soon possible. Ideally, within a few days of the accident. If you file quickly, it is easier to present your case (with supporting documents) than if you wait. The value of your vehicle may decrease if you delay filing a claim.
Questions frequently asked
Is it worth making a claim of diminished value?
It can be difficult to file a claim for diminished value. However, if your vehicle’s value has dropped significantly after an accident, even if it is in its original condition, you can file a claim for diminished value to compensate for this loss.
Is it required that insurance companies pay diminished value claims?
If you have auto insurance and the other driver was at fault for your accident, you may be entitled to a diminished-value claim. It is up to you to prove the car’s diminished worth. The insurer will not pay the claim unless you do this effectively. You should also be aware that each state has its own regulations and will deal with claims in a different way. Michigan drivers should be aware that diminished claims laws are handled differently in their state compared to every other state.
What is the time it takes to settle a claim of diminished value?
Sometimes, diminished value claims take longer to resolve than standard auto claims. These types of claims can take several weeks, if not months, to resolve due to their complexity. To get the best results in certain cases, it may be necessary to engage a lawyer to act as an intermediary between the insurance company and you. This can prolong the process.
What is the average time it takes to settle a claim?
Each claim is different so the time taken to settle each one will differ. It may take longer for claims involving multiple parties or injuries to be settled than simpler cases. Insurance companies usually resolve claims within one month of the filing. Your settlement could be faster or slower depending on the details of your claim.